Capturing the benefits of global supply chains

American Public Media’s Marketplace had an interesting take on global supply chains by tying it to the launch of the iPhone in China. The iPhone is made in China, so they ask “Who benefits when you buy an iPhone?” . They tackle that question by taking apart an iPhone and seeing where parts come from. The “touchscreen digitizer” comes from Sharp. The flash memory from Toshiba and they are part of why Japanese firms capture about 14% of the iPhone supply chain profit. Korea also gets a slice since Samsung supplies the processor. China, however, ends up with the short end of the stick — only about $4 out of the $300 or so the phone goes for in the US.

Of course, who gets the lion’s share of the profits is not surprising if you have seen Apple’s recent earnings . Steve Jobs and Co. are estimated to get 50% or so of the pie. The story’s conclusion:

From China’s perspective, here’s the moral of the iPhone story: the dominant players in the global economy are the inventors and the brand owners: whether it’s electronics, or cars, or clothing.

That is emphasized by a follow-up story from today on what it’s like to make iPhones It doesn’t sound like a lot of fun.

In the words of one worker:

Each of us is like an ox. We never stop working. The factory is over 100 degrees. We go for 12 hours a day.

If nothing else, the report drives home that there is nothing particularly special about cheap labor. Sitting in the West it makes sense to move low skill, labor intensive tasks overseas (if you can look askance at labor issues). If you are in the business of supplying cheap labor, however, there is only real money if you can move up the value chain.

That brings us to another interesting global supply chain story (also from a slice of public radio). NPRpresented a three part series on the international outsourcing of airframe maintenance (Flight Mechanics: The Business of Airline Repairs). The FAA requires that commercial airplanes every two years. We’re talking stripping out all the seats and overhead bins to check all the metal and wiring. Turns out, that’s expensive:

If an airline fixes its own planes in the U.S., it spends up to $100 per hour for every union mechanic, including overhead and other expenses, according to industry analysts. The airline spends roughly half as much at an independent, nonunion shop in America. And it spends only a third as much in a developing country, such as El Salvador.

Currently, 20% of these major overhauls happen outside the US with Central America getting a sizable slice of the business. There is, of course, concerns with quality here. Overhauling planes does not qualify as low skill work and when, say, mechanics cannot read English well enough to understand the client airline’s manual, you might worry.

For my money, the most interesting part of the series is the third part which focuses on American Airlines (Bucking Trend, Airline Keeps Repairs In-House). AA has bucked the trend and still does all its overhauls in-house. Indeed, it takes in work from other airlines. How can it be competitive if its unionized workforce is so much more expensive? Speed!

Facing intense competition from foreign maintenance companies, American and its mechanics have collaborated to cut the time and number of workers needed to complete a major overhaul called a “heavy check” — during which mechanics strip the interior of the plane all the way down to the skeleton. The overhaul now takes 12 days instead of 22, and a little more than 300 workers, down from 700.

This is just an interesting story. It’s a service setting but it really is playing out like manufacturing. What manufacturing is left in the States has gotten by wits, guile, and above all productivity. And that is what is letting American compete with low cost rivals. That said, one wonders how long it can last. There are a limited number of basic airframes out there. An overseas servicer does not need to be super competitive on every airframe. It just needs to be fast and effective on the high volume ones (say, 737s). It seems that if the overseas firms were willing to focus on limited offerings, they should be able to cut into American’s time advantage.

source: wordpress.operationsroom

Can India's Logistics Industry Deliver a Better Model for Transporting Goods?

In October, G.R. Gopinath, who revolutionized air travel in India by starting Air Deccan, the country's first low-cost airline

This time around, though, he'll be transporting cargo, not passengers.

"Deccan 360 will change the way deliveries are made all over India," Gopinath says. "At present, next-day connectivity is limited to the metros and a few cities. My goal is to connect 75 cities in India to each other on a 24-hour delivery schedule within the next year."

When Gopinath launched Air Deccan in 2003, only 1% of Indians traveled by air. By the time he sold his venture to industrialist Vijay Mallya in 2007, the figure had jumped to 5%.

Why is Gopinath, a former army pilot and farmer, venturing into the logistics space now?

"Many entrepreneurial decisions are taken at a subterranean level," he says. "The idea of starting a logistics business was was both instinctive as well as fueled by my own frustrations."

Gopinath notes that many times in Air Deccan's early days, a flight cancellation could be attributed to the lack of adequate logistics services in India.

 Gopinath's experience largely sums up the state of the logistics industry in India: inefficient and expensive.

Industry players and analysts say logistics costs in India are among the world's highest -- accounting for 13% of GDP, according to a report by KPMG. That is far greater than in the United States (estimated at 9%), Europe (10%) and Japan (11%). Outside of the metros and a few cities, the timing of deliveries is uncertain.

Big Hurdles

1. A lack of adequate infrastructure and complex taxation and regulations are big hurdles. For example, most domestic airports don't have adequate cargo terminal facilities.

"In this business, turnaround time is critical," notes Anil Khanna, managing director of Blue Dart Express. "If one does not have the right facilities in terms of size and site within an airport, it is a huge challenge." Blue Dart is the only logistics player in India with dedicated cargo aircraft (just seven).

2. Moving cargo by road has its own set of problems. National highways form only 2% of India's road network, but they handle more than 40% of road freight traffic. This naturally leads to traffic jams. Regulatory requirements and cumbersome documentation also compromise speed. "On average, a commercial vehicle in India runs at a speed of 20 miles per hour. In Western Europe and the USA, the average speed is over 60 miles per hour," notes Vineet Kanaujia, general manager at Safexpress, which has a fleet of 3,500 vehicles.

3. Moreover, India's tax system is complex. To avoid multiple taxation, companies typically have warehousing operations in every state. The result is a large number of small warehouses across the country that lack the latest warehousing processes and technologies and don't offer economies of scale.

HUB and SPOKE

Gopinath, for one, is betting big. He is creating India's first hub-and-spoke distribution model for express logistics. A 100-acre state-of-the-art cargo handling facility in Nagpur in central India will serve as the hub for his operations and will connect the metros as well as tier two and tier three cities through an air and surface network. Deccan 360 will begin operations in October with three Airbus aircraft and a network of 30 franchisees (for surface transport, warehouses and collection points). At first, Deccan 360 will offer next-day connectivity to 30 cities in India. Within a year, Gopinath plans to increase the air fleet to five Airbuses and four aircraft from French-Italian manufacturer ATR, ramp up the franchisee network and offer next-day connectivity across 75 cities.

Value Chain Analysis

What is Value chain analysis and why is it required?

Value Chain Analysis or Value Stream Mapping is a useful tool for working out how you can create the greatest possible value for your customers, as well as your best route to profit maximization.

Value Chain Analysis helps you identify the ways in which you create value for your customers, and then helps you think through how you can maximize this value: whether through superb products, great services, or jobs well done.

Steps in Studying a Value Chain

Value chain analysis can be broken down into a three sequential steps:

1. Break down a market/organisation into its key activities under each of the major headings in the model;
2. Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;
3. Determine strategies built around focusing on activities where competitive advantage can be sustained

Things to be covered while studying value chain:

• Various members in the chain
• Interlinkages between each element
• Stages of production between each element
•  Any special relationship between any two elements
• Some typical players in each stage along with their sizes, products and their special relationship between any other player
• Scope of vertical integration (Need and hurdles)
• Any particular dependency on one particular player (monopoly situation at any stage)
• Cost/price mark-up and value addition at  each stage

Value Chain Analysis is a three-step process:

1. Activity Analysis: Firstly, you identify the activities you undertake to deliver your product or service;
2. Value Analysis: Secondly, for each activity, you think through what you would do to add the greatest value for your customer; and
3. Evaluation and Planning: Thirdly you evaluate whether it is worth making changes, and then plan for action.

We follow these through one-by-one:-

1. Activity Analysis:

The first step to take is to brainstorm the activities that you, your team or your company undertakes that in some way contribute towards your customer’s experience.

These will include marketing of your products or services; sales and order-taking; operational processes; delivery; support; and so on (this will may also involve many other steps or processes specific to your industry).

At a personal of team level, it will involve the step-by-step flow of work that you carry out.But this will also involve other things as well (Porter’s “Support Activities”). For example:-

• How you recruit people with the skills to give the best service;
• How you motivate yourself or your team to perform well;
• How you keep up-to-date with the most efficient and effective techniques;
• How you select and develop the technologies that give you the edge; and
• How you get feedback from your customer on how you’re doing, and how you can improve further.

2. Value Analysis:

Now, for each activity you’ve identified, list the “Value Factors” - the things that your customers’ value in the way that each activity is conducted. 

e.g. if you’re thinking about a telephone order-taking process, your customer will value a quick answer to his or her call; a polite manner; efficient taking of order details; fast and knowledgeable answering of questions; and an efficient and quick resolution to any problems that arise. 

If you’re thinking about delivery of a professional service, your customer will most likely value an accurate and correct solution; a solution based on completely up-to-date information; a solution that is clearly expressed and easily actionable; and so on. Next to each activity you’ve identified, write down these Value Factors. And next to these, write down what needs to be done or changed to provide great value for each value factor.

3. Evaluate Changes and Plan for Action:

By the time you've completed your Value Analysis, you’ll probably be fired up for action: you’ll have generated plenty of ideas for increasing the value you deliver to customers. And if you could deliver all of these, your service could be fabulous!

Now be a bit careful at this stage: you could easily fritter your energy away on a hundred different jobs, and never really complete any of them. So firstly, pick out the quick, easy, cheap wins – go for some of these, as this will improve your team's spirits no end. Then screen the more difficult changes. Some may be impractical. Others will deliver only marginal improvements, but at great cost. Drop these. And then prioritize the remaining tasks and plan to tackle them in an achievable, step-by-step way that delivers steady improvement at the same time that it keeps your team’s enthusiasm going.

Some Tips

• If you carry out the brainstorming behind the Activity Analysis and Value Analysis with your team, you’ll almost certainly get a richer answer than if you do it on your own. You may also find that your team is more likely to “buy into” any conclusions you draw from the exercise. After all: the conclusions will be as much theirs as yours.
• If you have a strong enough relationship with one or more of your customers, it may be worth presenting your conclusions to them and getting their feedback – this is a good way of either confirming that you’re right or of getting a better understanding of what they really want.
  

Source: mindtools.com

Inaugural Guest Lecture by Rajesh Nath

Hey people

Today Mr. Rajesh Nath enlightened us about Japanese Supply Chain Management. Mr Rajesh Nath is VP of Fanuc India, manufacturers of Robots, Computerised Numerical Control machines. For those who missed his lecture, I am taking this opportunity to share his views through this blog.

According to him
"Operations Management is not just Supply Chain Management"

Rather, OM includes nine vital roles such as

1. Design 2. Quality 3. Process 4. Factory/Layout 5. HR 6. SCM 7. Inventory Control 8. Scheduling 9. Maintainence

Fanuc Group works solely on Japanese philosophy which contradicts the traditional one. To illustrate this:

1. They produce all their products in one single plant- Mother plant
The basic fundamental is the economies of scope and reducing discrepancies in having multiple small plants.

2. The production planning for whole organisation is done by 'a single person'.
The automation of planning and manufacturing eliminates the need for human supervision on the shop floor.

3. They work on a principle of "Narrow Path"
In world of diversfication, they also emphasise on basic technology.

4. They also undertake aggressive Mergers & Aquisitions

5. Centralized Command is prevalent in the organisation

6. One of the impressive policy of the company is
"the actual designer of any product's prototype goes through the cycle of
Design ---> Development ----> Manufacture---->sales"

" Ringi Process " - the Japanese technology gave us an insight into the Japanese management system.

Your comments are highly appreciated.